estate planning

Learn more about Estate Planning

In terms of real estate, Canada is a lot like plenty of other countries. No matter where you are, estate planning is a process that aims for two main objectives: distribute your assets as you want them to be and minimize the tax burden on your heirs.

Your estate is made up of all that you have worked so hard to accumulate during your life, so you certainly want to have the last words on how it is to be distributed and most of all, you don't want to end up giving it all away in tax money.

This is why having an estate plan and designating power of attorney are so helpful. They exists to make sure your assets remains in the hands of the people you chose. Wills are another helpful ally to save time and money by laying the blueprint of your estate for your loved ones to follow.

What is estate planning?

Estate planning is the process of determining how an individual's assets will be kept, managed, and shared after death or if they become physically or psychologically disabled. Estate planning chores include drafting a will, establishing trusts and/or making charitable donations to minimize estate taxes, naming an executor and beneficiaries, and arranging funeral arrangements.

Estate taxes may wipe out a significant portion of the estate's assets and even destroy an inheritance. For example, in 2013, there is a 40% estate tax rate that applies to estates worth $5 million or more. A surtax is also levied on property values greater than $10 million. This results in a top estate tax rate of 50%, as shown in chart 1 below.

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It might sound like a hard ask when it comes to assets and money, but estate planning requires you to think ahead and plan for the future. On the other hand, you could also reap the benefits of these efforts while you're alive and kicking, as bringing structure and making decisions on how you manage your money should help you in the present as much as in the future.

To put it simple, estate planning is how we call any activity that details or give instructions about how you assets should be used, distributed or managed in the event of your death or incapacitation. An estate plan is built with a combination of financial tools and legal documents to give your loved ones the easiest possible plan to follow.

How to develop an estate plan in Canada

Developing an estate plan can be done in many ways in Canada. You could embark on this endeavour alone, or pay for the professional help-of an expert. A quick search on Google and you should find plenty of apps and templates for a more DIY experience. Going this way doesn't mean putting yourself at risk, since you can always use such templates and still hire a lawyer to revise and review everything before it is considered legally binding. Your estate plan can include many documents like a will and a power of attorney designation. Since there is no"all-around" estate planning expert, you could be working with a handful of professionals including the followings:

• Lawyers
• Notaries
• Tax specialists
• Financial security advisors
• Financial planners

Start the planning process

So, what comes after assembling your estate planning dream team ? The answer is imagination.You'll need to picture what would be the best case scenario for your wealth if you were to die tomorrow. In order to save as much stress as possible for your family, you will not only have to consider all your assets and their distribution, but also taking into account many special factors like charity donations or gifts to minor children. Last but not least, you also have to appoint personal representatives (executors, trustees or guardians) to manage your wealth and follow your well-crafted plans if you're not here to do so.

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To have a complete estate plan, you might want to ask yourself these questions:

• Do I want to give specific assets to specific family members?
• When should my heir receive those specific assets?
• Do I want to include a charity donation in my estate plan?
• How important is it for me to minimize tax liabilities?
• Do I have enough life insurance coverage to offset the cost of income taxes or to protect my business?
• Who do I want to transfer my registered accounts (RRIFs, RRSPs) to? Keep in mind these assets could have a negative impact on your final tax return fi they are not transferred to a dependent or your spouse/partner.

Gathering and documentation

Once you have a good idea of what you have and how it is to be distributed, the next step involves documenting access information on things like:

• Bank accounts
• Investments
• Retirement accounts
• Insurance policies
• Titles; deeds; proof of ownership for property, vehicles, and other belongings
• Heirloom items, keepsakes, etc.

Creating documentation

The fun part begins after you have checked all the boxes above. You should now be able to write the documentation of your estate plan, which should comprised of:

Will

A will, among other things, will prevent your family from having to go to court in order to appoint the administrator of your estate. the role of an administrator isn't to be taken lightly, as it has the responsibility to manage the estate and make important decisions about the assets. On of the caveat with letting the court appointing an administrator is that it could be someone who has no idea about your desires and what is important to you. That could mean mismanagement of a precious family heirloom or simply failing to fulfill your last wishes regarding your assets and their distribution. Moreover, the court may need some time to process these decisions for your estate which would delay everything. A will brings efficiency and security to your estate plan, by simplifying the transfer to your heirs and other financial matters.

Deciding you should take ownership of your assets, who should take care of your minor children and who should be named executor of your estate can all be done through your will. You should also note that each provinces has their own approach and terminology regarding wills as well as different de facto asset distribution plan in the event of an intestate death (without a will).

Trusts

Similar to wills, trusts are also a useful tool to have in your estate planning toolbox. Trusts are there to allow the legal transfer of assets to a trustee, who is responsible of holding the assets until the actual beneficiaries are ready to claim them (or when they reach the age that whats specified in a will). The two most common types of trusts are living trust, taking effect during your lifetime, and testamentary trusts, which are created in your will and take effect after your death.

Power of attorney and living will

Let's stop talking about death for a change: living will and power of attorney are there to help you in case of injury or incapacity. for many reasons, you could find yourself in a situation where you can't make important decisions on your own while stil being alive. Giving power of attorney to someone aims to take care of this problem by giving them the power to make these decisions for you. Financial power of attorney are the most popular, but living wills (healthcare directive) are also important for instructions regarding personal care.

Final arrangements

Final arrangements are a nice bonus to add to your plan. These are useful to let your loved ones know how you would like to be buried or cremated and can include details about your funerals in general.

Legalizing and storing your estate plan

After all the steps are done, you would probably want to legalize everything and store it somewhere safe. A will is considered legally if it is:

1. Written by you in sound mind
2. Signed
3. Signed by two witnesses, excluding anyone who would benefit from your estate

Those three criteria are what makes a will official. It could be different in Quebec, where it is always recommended to meet with a notary to draft your will. If you want, you can keep your will at home or even at a bank in a safety deposit. The lawyer or notary who helped you along the way could also keep a copy of the documents. Either way, informing your loved ones of the whereabouts of your documents is mandatory if you want to make things as easy as possible for them.

Updating documentation

While you'll be asked to make a lot of decisions when planning your estate, you should know that none of them are irreversible and that you'll be updating this plan throughout your life. Major life events such as marriage, the birth  of a child, divorce or starting a business could lead you to revise your plan here and there. A good estate plan relies on the current versions of the law, which means any changes in them could also be a signal that it is time to update some documents. On top of that, time is the bigger factor here and you may find that the first version of your will where your parents where named as executors isn't suited to your life 5, 10 or 15 years later.

Estate planning checklist

To sum it all up, here is a quick checklist that will remind you of every step of the estate planning process:

• Legally binding will
• Power of attorney
• Living will
• Insurance policy
• Final arrangement details
• List and contact details of estate professionals you've worked with

Taxes and fees

As opposed to the United States, Canada doesn't have an official "estate tax". Taxes are determined based on certain types of accounts or assets. This means some types of retirement or savings accounts and in some cases real estate are taxed through estate sale proceeds. You should also be aware that owning shares of a U.S corporation or owning real estate south of the border would make you a U.S resident for tax purposes and therefore have a big impact on your estate planning process.

As with any rules, there are some exemptions and exceptions to know, but the bottom line is that having an estate plan is the best way to minimize the estate's tax liabilities. Since no one wants to pay more than what they should when it comes to tax, making sure your assets are transferred properly with an estate plan is always a good idea. Of course, settling an estate comes with fees—probate fees, attorney fees, provincial fees, accounting fees, etc. An estate plan also helps to minimize these fees and thus maximizing the actual value of your estate for the people who matters to you.

Minor children

As mentioned earlier, you should definitely include a will in your estate plan if you’ve still got minor children. This will let you decide what should happen with your children if you were to die before they reach the legal age of responsibility. Without a will, the court would determine all of this for you, including how any money left to them would be handle. Overall, having a will can make sure your children are properly taken care of in the worst case scenarios.

One of the biggest calls to make when making a will is choosing the guardians of your minor children. After all, the guardians you choose might have to raise your children, so their values, their lives and their financial situation should be taken into account.

Estate planning for business owners

Just like any other financial planning activities, estate planning gets a bit more complex if you own a business. In such case, handling tax liabilities and your business succession are the two main points where things goes a bit deeper into the complexity (and fun!) of estate planning. The solution : getting the help of experts who are familiar with these specific cases.

Bottom line

What you should remember is that a solid estate plan including a valid will is the best way to leave a positive mark if you were to die. Not only will it help your loved ones dealing with the financial consequences of your death such as taxes and asset distribution, but it will also give them peace of mind knowing that your wishes are fulfilled on every details.